Your Sales Plan won’t Work…
In a recurring revenue world… There are two (2) reasons I feel comfortable making that statement. Reason #1 – you’ve most likely taken your tried and true transactional based sales plan, dusted it off and perhaps altered it slightly - that’s a Bozo No-No (look up the video, hilarious)… Reason #2 is the plan no matter how good the mechanics and intentions are, it will not incent your sales professionals to alter their modus operandi. Think about it - would you give up the “Big Bang” for a morsel of variable compensation paid out over time? The short answer is No…
Now before we dig too deep it’s important that you set your Sales Model and determine a framework prior to re-architecting your sales plan. Please refer to last week’s post entitled “Your Sales Model needs to Progress”. Click here to review and see our approach and prescription regarding sales models.
With your model set, it’s time to create a sales plan that will drive the results you desire. There are several key tenets that we believe, based on the hundreds of plans we’ve reviewed, lead to a plan that will yield sustainable and growing results on a month-over-month basis – which needs to be a fundamental objective.
Recurring Revenue Sales Plan Tenets
It’s all about getting more sticks on the pile in a predictable manner and never letting those sticks disappear (reducing churn). As always, any plan needs to be straight-forward, easy to understand and most importantly easy to track and manage. With that said, the major tenets we prescribe include:
1. The sales plan must focus and drive the company’s business objectives --> don’t deviate…
2. The sales plan needs to fit within your current business model --> if your model dictates sales cost is no more than 7.3% of revenue, design your plan accordingly…
3. The company should not create a plan that has them become a bank --> investing over the short-run (6 months) is fine, but if you need to overcompensate and pay way ahead of the curve to get peoples interest – it’s a bad plan and you need to look to other people to drive your objectives…
4. The plan must drive the sales professional to build a book of business that expands month-over-month --> recurring revenue is a marathon that does not end at 26.2 miles – keep running and keep growing the pie…
5. The plan must incent the sales professional to stay engaged & attached to the client --> ensure monthly revenue expansion occurs over time within each account to counteract churn and grow each customer’s annual contract value (ACV)...
Recurring Revenue Sales Approaches
Using the fundamental beliefs listed above as the back-drop, let’s take a look at the various types of sales plans that can be deployed. In addition, we’d like to provide some thoughts on what we’ve seen work and what we’ve seen become an albatross or anchor. Again, we’ll assume you’ve come to terms with the proper sales model for your organization. So, some potential recurring revenue sales plan approaches include:
1. Pay entire Year 1 commission upfront as though it were a legacy transaction --> don’t become a bank…
2. Pay Month 1 revenue to sales professional as commission on the deal --> clean and easy, but usually shunts growth…
3. Pay a percentage (%) of the deal (example = 25%) and then the remainder monthly over the term of the contract --> typically positively received and spurs growth…
4. Pay commission on a monthly basis for the term of the contract --> perfect and our preference as long as sales professional has ramp or bridge to move smoothly towards on target earnings (OTE)…
Obviously, you can come up with several permutations or something more grand and innovative in the way of a pay plan, however, at the end of the day the approaches above tend to be the most common methods we see within our assessment platform.
Things to Consider
Once you’ve outlined your business objectives and are ready to align the sales plan with a recurring revenue friendly business model there are several things you need to think about as you frame-up and finalize your sales plan. Some things you should ponder include:
1. Will you pay your sales professionals on the lifetime value of the contract (LTV) or just Year 1?
2. Who ensures and manages the renewal?
3. Who suffers or is penalized if there is churn?
4. Will your sales plan include a claw-back mechanism to ensure sales professionals are not compensated for contracts that churned out?
5. Can you effectively manage claw-backs?
6. Do you have the capability to pay sales professionals for monthly recurring revenue (MRR) increases in contract value?
7. Will your plan include a kicker for upfront payments?
8. Do you have an automated system that deals with sales compensation (transactional & recurring) and provides accurate and transparent output so that you don’t spend unproductive cycles proving your calculations are correct?
I have a very strong opinion on what a great recurring revenue sales plan should look like and the one (1) dictate we always recommend is – the plan must be totally focused on generating recurring revenue… Don’t allow for the plan to allow the sales professional to make their nut in any other way, other than by going through the recurring revenue gate…
You need focus, you need results and you need a sales plan that will deliver the recurring revenue that meets your business objectives.
Conclusion
The preferred approach and framework we prescribe and have seen work at the highest clip-rate is to first and foremost provide a bridge that ensures the sales professional has a six (6) month period to build an acceptable recurring revenue run-rate that ensures they can hit their on-target earning (OTE) threshold.
Second, pay your sales professional on the life time value (LTV) of the contract.
Third, once they are on plain (they’ve crossed the bridge or chasm) they should be paid monthly if you’re getting paid monthly, quarterly if you’re getting paid quarterly, etc.
Lastly, you should have no problem paying a sales professional for years on a contract, however, you should ratchet down the percentage (%) payout in the out years. In other words, pay the full commission percentage (%) in Year 1, a smaller % in Year 2, an even smaller % in Year 3 and then hold that % constant for the balance of the remaining years of the contract. The notion that sales professionals get lazy if they keep getting paid on a deal is bullshit. It’s all about building a huge book of business (a portfolio, if you will) and then continuously growing that pie over time. Life insurance sales people are not slugs – they’re business generating machines…
In closing, there is no perfect approach or one size fits all approach, rather there is a framework, critical thinking, some hard work and execution against the plan. If you use some of the approaches and ideas presented here you’ll have knocked down one of the leading inhibitors that lead to a business not creating a long lasting recurring revenue business that when done right keeps on giving, even while you sleep.
Now’s the time to begin building a sustainable, profitable and growth orientated recurring revenue cloud services business.
Remember even if you’re not moving – your customers are…
Keep Calm and Subscription-on!
About the Author: George Mellor is the Founder & CEO of KloudRe
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